Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice! As always, please remember to consult with your professional investment advisors as I am an amateur investor.
Ametek (AME) is a stock that I intended to write up yesterday but frankly, I just never got around to doing it! The stock hit the NYSE top % gainers list yesterday, and after looking at some of the background on the company, I still believe it deserves a spot on the blog. Ametek closed today at $34.28, up $.11 or 0.32% on the day.
Let's take a closer look at this stock and I will try to show you why I like it!
What exactly does the company do?
According to the Yahoo "Profile" on Ametek, the company
"...engages in the manufacture and marketing of electronic instruments and electromechanical devices worldwide. The company operates through two groups, the Electronic Instruments Group (EIG) and the Electromechanical Group (EMG)."
How did the company do in the latest quarter?
Yesterday, before the opening of trading on the NYSE, the company announced 4th quarter 2006 results. Sales for the quarter ended December 31, 2006, climbed 19% to $480.7 million from $403.8 million in the same quarter the prior year. Net income climbed 30% to $47.8 million or $.45/diluted share, up from $36.9 million or $.35/diluted share in the same quarter last year.
The company beat expectations of sales of $465 million and earnings of $.43/share. For fiscal year 2007, the company raised guidance on sales with indications for a 10% increase to $2 billion ahead of the current estimates of $1.93 billion. Estimates for net income were in line with current expectations of a 13-15% increase from 2006's $1.71/share to a range of $1.93 to $1.97/share.
I find earnings reports that are able to demonstrate increased revenue, increased earnings, beat expectations for both and manage to raise guidance as well are about as good an investor going long on a stock could hope for!
What about longer-term financial results?
Looking at the "5-Yr Restated" financials on Ametek (AME) on Morningstar.com, we find a beautiful picture of steadily increasing revenue. Revenue was $1.019 billion in 2001 and has increased each year to $1.43 billion in 2005 and $1.74 billion in the trailing twelve months (TTM).
Earnings during this period have also steadily increased from $.66/share in 2001 to $1.33/share in 2005, and $1.64 in the TTM.
The company also pays a small dividend which was $.08/share in 2001, and doubled to $.16/share in 2004 and has been $.16/share in the TTM as well.
Ametek has modestly increased its outstanding shares from 98 million in 2001 to 106 million in the TTM. This is approximately a 7% dilution while revenues increased about 65% and earnings were up more than 100%. This is a very tolerable level of stock dilution imho.
Free cash flow has also been positive and increasing from $138 million in 2003 to $143 million in 2005 and $190 million in the TTM.
Finally, the balance sheet is satisfactory with $58.5 million in cash and $601.0 million in other current assets. When compared to the $472.7 million in current liabilities, this works out to a current ratio of 1.4. Generally, I use a minimum of 1.25 to suggest good financial health. The company has another $626.5 million in long-term liabilities but with the solid and increasing free cash flow this doesn't appear to be a problem.
What about some valuation numbers for this stock?
According to the Yahoo "Key Statistics" on AME, this is a mid cap stock with a market capitalization of $3.63 Billion. The company has a trailing p/e of 20.93 with a forward p/e of 15.51. The PEG ratio is a very nice 1.25 (5 yr expected).
Using the Fidelity.com eresearch website, we find that the Price/Sales (TTM) is a reasonable 1.88 with an industry average of 11.31. The company appears to more profitable than most companies in its industry with a return on equity (ROE) (TTM) of 19.79 compared to an industry average of 18.79%. Thus, the company is relatively 'cheaper' than average as well as being slightly more 'profitable' than the average company in the same industry!
Finishing up with Yahoo, we can see that there are 105.86 million shares outstanding with 102.09 million that float. Currently there are 1.85 million shares out short representing 2.80% of the float (as of 12/12/06). This is also 5.4 trading days of volume (the short ratio). Using my own 3 day rule on short ratio, this is a bit of a heavy short interest and the stock price rise yesterday could well have been part of a 'squeeze' of the shorts.
The company currently pays a foward dividend of $.24/share yielding 0.7%. The last stock split was a 3:2 split on 11/28/06.
What does the chart look like?
Examining the "point and figure" chart on Ametek from StockCharts.com, we actually can see a VERY strong chart which since pulling back to $9/share in October, 2002, has been on a tear, moving strongly higher without much of a 'rest'. The stock pulled back to $27 in July, 2006, and is currently pushing to new highs at the $34.28 level.
Summary: What do I think about this stock?
Quite frankly, I like this stock a lot! That is why I went back and posted Ametek today even though it hit the top % gainers list yesterday! Let's review a few of the things that I find attractive about Ametek. As negative, the stock is headquartered in Pennsylvania instead of my home state of Wisconsin...well you can't have everything :). But seriously, they reported quarterly results which were terrific, strong growth in revenue and earnings, beating expectation and raising guidance for revenue. On top of this, they have a strong record of doing similarly for the past 4-5 years. They pay a dividend which they have increased rercently, they have kept the # of shares outstanding fairly stable and have steadily increasing and positive free cash flow. Furthermore, the balance sheet looks solid.
Valuation-wise the p/e is relatively low and the forward p/e is in the mid-teens. The PEG at 1.25 is very reasonable. The Price/Sales is LOW for its group and the ROE is high. There are even a significant number of shares out short setting this stock up for a squeeze. Finally, the graph looks nice. Now, if only I had a buy signal to add this stock to my portfolio :(. Anyhow, that's a great one for the blog!
Thanks so much for stopping by and visiting. I hope that my comments are helpful to all of you! If you have any comments or questions, I look forward to hearing from you right on the blog or email me at firstname.lastname@example.org. If you get a chance, drop by and listen to my Stock Picks Podcast which you can find on my Podcast Website!
Updated: Thursday, 25 January 2007 8:59 PM CST